US Election 2024: Rupee May Weaken, Retaliatory Tariffs Imposed, Says DAM Capital Advisors
Trump's win could bring significant changes to India’s trade environment, with the rupee potentially weakening and critical sectors like auto components and textiles at risk of facing new US tariffs.
The Indian rupee may depreciate significantly as a result of the victory of Donald Trump in the US 2024 election, according to a report by Dam Capital Advisors. As India comes under the designation of a currency manipulator, it could trigger retaliatory tariffs from the US, the report said.
This would be particularly detrimental to key export sectors like auto components, textiles, and solar modules, which could face higher costs and reduced competitiveness, the report said.
Trump's trade policies will be pivotal in shaping India’s trade dynamics. Though India may not face the same level of tariff escalation as China, the US could still impose higher tariffs due to concerns over currency manipulation and trade imbalances, the note said.
The direct impact of this in India will vary by sector.
Auto Ancillaries: As companies like Bharat Forge heavily depend on the US for auto parts exports, higher tariffs could dampen their growth prospects.
Electronics: On a more positive note, Indian electronics exporters could stand to benefit from the ongoing US-China trade tensions. As the US looks to diversify its supply chains away from China, companies such as Dixon Technologies, Amber Enterprises, and Havells may see an uptick in demand for their products. The report suggests that Indian firms in this space could capitalise on this shift, helping reduce India's trade deficit with the US.
Solar: India’s solar sector could face significant challenges under a Trump administration. The report warns that US tariffs on solar modules—particularly those coming from China—could also extend to Indian exports. This would likely stifle growth in an already competitive global market.
Pharmaceuticals: India's pharmaceutical exports could face mixed bag of outcomes. On the one hand, higher tariffs on Chinese pharmaceutical exports to the US could open up opportunities for Indian producers. However, while a tariff hike on India exports to US is negative, it's likely to be countered by rupee depreciation.
While US policy remains crucial to India’s economic future, global economic factors such as the US Federal Reserve’s interest rate decisions will play an even larger role.
Dam Capital Advisors also highlighted that a potential Fed rate cut under a Trump administration would reduce borrowing costs and increase liquidity in global markets, benefiting emerging economies like India. This could provide a boost to sectors like financial services and housing with reduced capital costs.
India's IT services could benefit from a Trump administration, especially as the firm highlights that lower US corporate tax rates and increased IT budgets could fuel growth in the sector. The end of election-related uncertainty in the US would also likely lead to higher private sector spending, which would further benefit Indian IT firms.
However, tightening H1B visa policies could pose a risk for Indian firms that rely on US-based talent, although Dam Capital Advisors suggested that larger, more localised firms, such as Infosys and Wipro, would be less affected.
